The U.S. Federal Reserve surprised everyone today by chopping both its key interest rates by 50 basis points (1/2%).  Most economists had expected only a 1/4% reduction.

How will Canadian interest rates be affected?  Many “experts” think the Bank of Canada will leave our rates alone for the rest of the year.  If so, variable mortgage rates should stay where they are.  Others feel rates could actually still go up 1/4% to 1/2% because Canada’s economy is so robust. 

Very few are calling for a drop in variable rates.

In the near-term, fixed mortgage rates may fall, however.  That’s because (unlike variable rates) fixed rates are based on bond yields, which have dropped significantly in recent months.

Is that confusing enough?

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In related news, the Canadian dollar looks like it’s on a one-way course to even money with the U.S. dollar.  It’s now at 98.74 cents U.S.–it’s highest level in over 30 years.  That could brake our economy and further reduce the chances of a Canadian rate hike this year.

Last modified: April 25, 2014